The opinion of the court was delivered by: Gerard E. Lynch, District Judge
Plaintiff Byong Kwon brings this action against Daniel J. Yun, Emergent Capital Investment Management, LLC, Metedeconk Holdings, LLC, Voyager Advisors, LLC, Millennium Tradition Limited (f/k/a Millennium Heritage, Limited), Emergent Management Company, LLC, Endurance Advisors, Limited (collectively, the "Yun defendants"), and Emergent Group Inc. ("Emergent"), alleging that defendants fraudulently induced him to leave secure employment to take positions with a group of entities operating an investment fund allegedly engaged in illegal activities, and in the process, to take out a $390,000 loan from defendant Metedeconk Holdings, which he has not repaid. The Yun defendants and Emergent both move for summary judgment on plaintiff's affirmative claims. Plaintiff, in turn, cross- moves for summary judgment as to Metedeconk Holdings' second counterclaim.*fn1 Defendants' motions will be granted in part and denied in part. Plaintiff's motion will be denied in its entirety.
Unless otherwise stated, the following facts are undisputed or construed in the light most favorable to the non-movant.*fn2
From August 2000 until January 2003, defendant Yun was Chairman of the Board of Emergent,*fn3 a publicly held company engaged in technological and medical investments. (Kwon Opp. Aff. Exs. O, 174; Yun 56.1 Stmt. ¶ 3; Yun Decl. ¶ 2; Am. Compl. ¶ 7; Answer ¶ 3.) He also is its largest shareholder, owning approximately 17% of its common shares. (Petriello Supp. Decl. Ex. A.) Emergent Capital Investment Management, LLC ("ECIM"), a hedge fund investment management company, ceased business operations in or about December 2001 and dissolved in or about February 2003. (Am. Compl. ¶ 8; Answer ¶ 3.) However, during its existence, Yun was a controlling owner and managing member. (Kwon Opp. Aff. Ex. M.) Metedeconk Holdings, LLC ("Metedeconk"), also substantially owned and controlled by Yun, was formed on or about October 16, 2001, and dissolved on or about December 24, 2003. (Id. Ex. E; Am. Compl. ¶ 9; Answer ¶ 3.) As of December 1, 2001, when Metedeconk began business operations, Yun was its sole manager. (Kwon Opp. Aff. Exs. E, C at 3.) Also its president, he had "complete power and authority to manage and operate the Company and make all decision affecting its business and affairs . . . within the budget and business plan approved by the Managers, except as limited, restricted or prohibited by the express provisions of th[e] Operating Agreement or [the Delaware Limited Liability Company Act]." (Id. Ex. C at 3-4.) Voyager Advisors, LLC ("Voyager"), originally known as Emergent Advisory LLC ("Emergent Advisory"), was a registered investment adviser of which Yun was the managing member. (Id. Exs. K, O; Am. Compl. ¶ 10; Answer ¶ 3.) Voyager dissolved in or about 2004. (Am. Compl. ¶ 10; Answer ¶ 3.) Millennium Tradition ("Millennium"), of which Yun was the president and a director, was an investment fund. (Kwon Opp. Aff. Ex. 53.) The only other executive officer and director of Millennium was Chi-Po Yim. (Id.) Emergent Management Company, LLC ("EMC") was Millennium's investment manager. (Am. Compl. ¶ 12; Answer ¶ 3.) Yun was a controlling owner and managing member of EMC, which ceased business operations in or about January 2002, and dissolved in or about May 2002. (Id.; Kwon Opp. Aff. Ex. 8.) Endurance Advisors, Limited ("Endurance"), of which Yun was the sole owner, was Millennium's investment manager beginning in January 2002. (Am. Compl. ¶ 13; Answer ¶ 3.)
II. Kwon's Employment with the Yun Defendants
From February 1998 to July 2001, Kwon was employed full-time as a senior official at New Valley Corporation ("New Valley"), a publicly-traded company engaged in investment banking and real estate and technology investments in the U.S. and Russia. (Stein Decl. Ex. 1; cf. Emergent 56.1 Stmt. ¶ 3; Kwon Opp. Aff. ¶ 6.) In or about September 2000, after spending time in New Valley's Moscow office, Kwon moved to its New York office and began to work on technology investments.*fn4 (Kwon Opp. Aff. ¶¶ 6-7.) Beginning in or about June 2001, while still employed by New Valley, Kwon began discussing with Yun the possibility of being hired as chief financial officer ("CFO") to help manage Emergent, ECIM, and Jordan Advisory Corporation ("Jordan") (later renamed Emergent Asset Management ("EAM")).*fn5 (Id. ¶ 9.) According to Kwon, Yun represented that he and his business partners managed approximately $600 million through several entities, including Millennium Tradition Limited (formerly known as Millennium Heritage, Limited), which had $500 million under management, ECIM, which had less than $10 million under management, and EAM, which had approximately $100 million under management. (Id. ¶ 10.) Yun also represented that Mark Waldron, one of his business partners, and Calvin Yee, Emergent's vice president, were moving to California to manage a medical services company recently acquired by Emergent, and that Emergent's CFO, Amy Lai, had recently resigned.*fn6 (Id. ¶ 11; cf. id. Ex. O.)
During the course of his talks with Yun, Kwon informed Yun that he was reluctant to leave his position at New Valley absent an assurance that his new job would be substantially secure and that his new employer would be financially stable. (Id. ¶ 13.) He also informed Yun that he wanted to continue his career in investment management, that he preferred to develop his deal experience at New Valley, and that he was concerned that leaving New Valley would damage his work history. (Id.) In light of Kwon's reservations, he and Yun discussed the future prospects for Emergent, ECIM, and EAM. (Id. ¶ 14.) While all of the entities had potential, Emergent was not profitable and ECIM and EAM did not have enough assets under management to be profitable as stand alone entities or to sustain their operations.*fn7 (Id.) Yun assured Kwon, however, that all three entities' business prospects were bright and their futures secure given the financial resources of Millennium. (Id. ¶ 15.) In particular, Yun represented that Millennium generated approximately $5 million in fees each year, and that he would finance and support Emergent, ECIM, and EAM with income and resources derived from Millennium. (Id.)
Based on these representations, Kwon believed that Millennium would lend credibility to ECIM and EAM, both of which were fledgling investment management firms. (Id. ¶ 17.) This added credibility was significant to Kwon, as the total amount of assets being managed by a firm and its affiliated entities is a screening factor used by fund consultants in selecting investment managers and thus directly correlates to the success of an investment management firm. (Id.)
The more assets a firm manages, the greater its credibility and the more successful a firm is likely to be in attracting new assets. (Id.) Thus, in Kwon's view, ECIM and EAM could be expected to benefit from Millennium's resources, including its management personnel and infrastructure. (Id.)
In the course of his conversation with Yun, Kwon asked several questions about Millennium's history. In response to these questions, Yun represented that Millennium's beneficial owner was an investment bank in Hong Kong and that the fund was created through a structured finance transaction. (Id. ¶ 18.) He also represented that after reviewing both the transaction and Millennium's activities, legal counsel concluded that Millennium was in compliance with all applicable laws. (Id. ¶ 19.)
On July 13, 2001, Yun sent Kwon a letter offering him the position of CFO of Emergent. (Petriello Decl. Ex. A.; Kwon Opp. Aff. ¶ 20; Yun 56.1 Stmt. ¶ 2; Yun Decl. ¶ 2; Emergent 56.1 Stmt. ¶ 1.) The offer, printed on Emergent letterhead, was "subject to the execution . . . of a definitive written agreement and the approval of Emergent's board of directors." (Petriello Decl. Ex. A.; see also Emergent 56.1 Stmt. ¶ 2.) It provided for a "[b]ase salary of $125,000 per year with performance bonus," "[o]ptions to purchase 250,000 shares of Emergent common stock at $.01 per share, exercisable on 7/1/02," and "[e]quity interest of 2.5% in Emergent Asset Management." (Petriello Decl. Ex. A.) Having orally accepted the offer contained in the letter, Kwon resigned from New Valley.*fn8 (Kwon Opp. Aff. ¶ 20; cf. Yun 56.1 Stmt. ¶ 4.) Although the July 2001 letter does not mention Kwon's role in connection with any entity other than Emergent, he was also to serve as CFO of other Emergent entities. (Kwon Opp. Aff. Ex. 115 ("Byong Y. Kwon is hereby elected to the office of chief financial officer of the Company [ECIM]."); id. Ex. O ("Mr. Kwon shall assist EAM in establishing its infrastructure, controls and the transfer of Jordan Advisory Assets to EAM. I recommend that he come in next week to speak with Calvin."); id. Ex. 108 ("Spoke to Byong for at least an hour last night. The more I speak to him, the more I think he's a good addition to Emergent as the "CFO" of all of our entities.").)
After Kwon accepted the position with Emergent, but before he began work, Waldron informed him that Emergent might face bankruptcy. (Id. ¶ 23.) The possibility of Emergent's bankruptcy was highlighted in its 10-K for the year ended December 31, 2001, which advised that "[i]n order to avoid ceasing [its] operations, a possible bankruptcy filing and in an effort to improve [its] financial condition, during the first quarter of 2002, [Emergent] began the process of renegotiating substantially all of [its] outstanding debt, lease, and trade obligations with [its] key creditors." (Id. Ex. 179 at 22.)
After advising Yun and other principals that the possibility of Emergent's bankruptcy might make it inadvisable for him to serve as the CFO of Emergent and EAM,*fn9 Kwon revoked his acceptance of the position of CFO of Emergent. (Id. ¶ 24; see also Petriello Decl. Ex. B at 105-07.) Instead, Yun agreed to appoint Kwon vice president of Emergent until the bankruptcy issue became clearer. (Kwon Opp. Aff. ¶ 25.) Accordingly, Kwon, Emergent, ECIM, and EAM agreed that Kwon would serve as a consultant to Emergent and as CFO of ECIM and EAM, and that he would be granted equity interests in Emergent and EAM, while his salary would be paid by ECIM rather than Emergent.*fn10 (Id. ¶¶ 25-26 & Ex. K; Petriello Decl. Ex. C; cf. Yun 56.1 Stmt. ¶¶ 7-8.) Despite these changes, Kwon oversaw accounting matters for Emergent until December 2001.*fn11 (Kwon Opp. Aff. ¶ 27; see also id. Ex. O.)
In keeping with the foregoing arrangement, on September 1, 2001, Kwon entered into another agreement by which he would be employed as a consultant to Emergent. (Id. Ex. C; see also id. ¶ 26.) Shortly after Kwon signed the agreement, Yun decided to separate his business interests from Waldron's and to move Emergent's headquarters to California, the location of its sole operating subsidiary. (Id. ¶ 40; see also id. Ex. J.) By Kwon's account, because he did not want to move to California and work solely for Waldron, he and Yun agreed that he would continue to be employed by ECIM in New York, that he would not work for Emergent, and that Yun would not submit the consulting agreement to Emergent's Board for approval. (Id. ¶¶ 41, 43; cf. Yun 56.1 Stmt. ¶ 8.) Thus, on October 11, 2001, Kwon "rescinded his acceptance," noting that the "Board of Directors ha[d] yet to approve the Agreement or set a date to review the Agreement" and the agreement was therefore not yet effective.*fn12 (Petriello Decl. Ex. D; see also Kwon Opp. Aff. ¶ 42.)
Several weeks later, Kwon executed a release agreement. (Kwon Opp. Aff. ¶ 46.) The agreement, dated October 25, 2001, was also signed by Yun, Waldron, Yee, Howard Waltman, Robert Adler, Matthew Fong Sr., and Paula Fong. (Id.; Stein Decl. Ex. 11 at 1.) According to Kwon, it was designed to minimize any claims asserted by Waldron in connection with the separation of Yun's and Waldron's business interests, as well as any claims from parties involved with Jordan (EAM). (Kwon Opp. Aff. ¶¶ 44-46.) Kwon maintains that this release was not intended to apply to employment-related claims, pointing out that those who signed the agreement were principals of Emergent or ECIM, and at least four of them were not employees of the defendants at all. (Id. ¶ 46; cf. id. Ex. N.) Defendants, in contrast, contend that this release was, in fact, intended to apply to Kwon's employment.
In addition to his involvement in Emergent, ECIM, and EAM, Kwon also was engaged with two other Emergent entities. On September 1, 2001, he helped form Emergent Advisory, LLC (later named Voyager Advisors, LLC), a Delaware Limited Liability Company. (Id. Ex. K at 2.) Based on the governing operating agreement, Kwon was to be the initial and sole manager of the company, as well as its president and CFO. (Id. at 2, 4.) At the end of September 2001, however, Kwon transitioned from his role as the initial and sole manager of Emergent Advisory to become merely one of several managers of the company. (See generally id. Ex. K.) He also resigned as president, though he maintained his position as CFO. (Id.) As of March 2003, Kwon was still employed by Emergent Advisory. (Cf. id. Ex. 55.) Additionally, in December 2001, after resigning from ECIM,*fn13 Kwon became an employee of Metedeconk and an officer of Voyager. (Id. ¶ 52.) During that time, Yun informed him that Metedeconk received financing derived from Millennium's management fees. (Id. ¶ 53.) For its part, Voyager entered into an agreement to manage approximately $40 million in assets for Millennium. This agreement was intended to give Voyager the required assets (i.e., more than $25 million) to qualify as a SEC-registered investment advisor. (Id. ¶ 55.) Investment management fees from Millennium would eventually be paid directly to Endurance Advisors, Limited, which in turn would pay Voyager. (Id. ¶ 56.)
From August to December 2001, Kwon had limited involvement in managing Millennium. (Id. ¶ 57.) Instead, Yun held primary responsibility for such management and, with the exception of Millennium's brokerage statements, kept all corporate records related to Millennium on his individual computer, rather than on the main computer server, where corporate records for Emergent and ECIM, among others, were stored. (Id.) In connection with a January 2002 negotiation of a proposed stock margin loan between Merrill Lynch and Millennium, Kwon renewed his inquiries regarding the beneficial owner of Millennium and the legality of its organization. (Id. ¶¶ 58-63.) In response to these inquiries, Yun represented that the owner was ASPAM Ltd., a Hong Kong corporation, that no written or oral agreements existed with a Korean public company named SK Global, and that the law firm of Sonnenschein, Nath & Rosenthal had been involved in all aspects of organizing Millennium. (Id. ¶¶ 59, 61-63.)
In contrast to the foregoing, various e-mails between Yun and Hye Min Kang of SK Global suggest that Emergent had a relationship with SK Global as early as June 2000. (Id. Exs. 6-7.) In one e-mail, Yun says "[w]e are looking forward to a long and mutually profitable relationship between Emergent and SK Global." (Id. Ex. 6.) A subsequent e-mail dated July 5, 2000, indicates that the Emergent-SK Global relationship pertained to the establishment of Millennium. (Id. Ex. 7.) In response to Kang's request that Emergent "change the 2nd company name from EC Pacific to Millennium Heritage" (id. at 2), the email states: "We are [proceeding] with establishing Millennium Heritage, Limited (possibly 'Millennium Heritage Fund, Limited') in the Cayman Islands. We are evaluating how much longer it would take if we incorporate the word 'Fund.' If the delay is significant, we will proceed using the name Millennium Heritage, Limited. . . . Once I have confirmation on the exact name of our second entity, I will be faxing over the documents to register with the Korean securities commission." (Id. at 1.)
A June 27, 2000, agreement between Emergent Management Company LLC and SK Global accords with these documents. (Id. Ex. 8.) Pursuant to the terms of the agreement, "SK Global . . . agree[s] to appoint Emergent Management Company LLC . . . to manage a trading portfolio to be situated in the British Virgin Islands. The sole purpose of the Fund will be to manage assets on behalf of SK."*fn14 (Id.) A March 14, 2001, letter from Yun to Kang discussing Emergent's management fee confirms that the companies' relationship extended into 2001, and was expected to continue at least through the end of that year. (Id. Ex. 16.) Following that letter, SK Global submitted to Yun for his signature a management agreement substantially similar to the June 27, 2000, agreement. (Id. Ex. 19.) Yun signed the agreement and returned it the same day. (Id.) On July 6, 2001, he explicitly confirmed that the relationship with SK Global had, in fact, taken off when he wrote to Waldron: "I will work with Dan G to start trading our Mammoth account more actively. If we show decent performance, we should be able to get several millions more from SK." (Id. Ex. 108 (emphasis added).)
After Korean prosecutors announced the indictment of certain SK Global officers for accounting fraud, an internal memorandum prepared by Kwon and other Emergent officials at Yun's request addressed defendants' potential civil and criminal liability as organizers and managers of Millennium. (Id. Ex. 55; see also id. ¶¶ 85-87.) In particular, it considered the potential exposure associated with misrepresenting the beneficial owner of a special purpose finance vehicle and concluded that such exposure was "serious." (Id. Ex. 55; see also id. ¶¶ 85-87.) The memo also noted that "even if a person were eventually found innocent of such charges his reputation would be severely damaged and he would face difficulty finding future employment in the financial services field." (Id. Ex. 55.)
After defendants' counsel Martin Stein opined that wrongdoings related to Millennium likely would not be prosecuted if Millennium had no further presence in the U.S. and no one in the U.S. had been harmed, Yun and Stein began contemplating ways to transfer Millennium's assets outside of the U.S. and wind down its business. (Id. ¶¶ 95-96.) When Yun rejected Kwon's suggestion that Yun hire a while collar criminal defense lawyer rather than rely solely on Stein's advice, Kwon resigned from Voyager, retained his own lawyer to represent his personal interests, and recused himself from all legal matters pertaining to Millennium. (Id. ¶¶ 97-99; cf. Yun 56.1 Stmt. ¶ 9.) Following this resignation, Kwon was employed only by Metedeconk.
After resigning from Voyager, Kwon informed Yun that Yun's plans to transfer Millennium's assets might constitute money laundering or otherwise violate the law. (Kwon Opp. Aff. ¶ 108.) Yun, however, responded that if he did not cover up his wrongdoing in organizing and operating Millennium, he would be imprisoned for a long time. (Id. ¶ 109-10.) Shortly thereafter, Kwon resigned from Metedeconk and cooperated in an investigation conducted by the United States Attorney's Office.*fn15 (Id. ¶¶ 112-18; cf. Yun 56.1 Stmt. ¶ 9; Stein Decl. Ex. 4.) Because he could not take any actions that would disturb this investigation, Kwon maintains he was precluded from using contacts with former colleagues, board members, business associates and vendors to aid in his search for new employment. (Kwon Opp. Aff. ¶¶ 117-18.) With the exception of two temporary consulting assignments for which he was paid approximately $190,000 from April 2003 to December 2006, between the time of Kwon's resignation and his January 2007 deposition, he did not receive any substantive job interviews or secure, or engage in negotiations for, a job offer. (Id. ¶¶ 119-20.)
A. Metedeconk's Alleged Representations
According to Kwon, after Kwon expressed his desire to move into a larger apartment in March 2002, Yun visited a number of apartments with Kwon and, encouraging Kwon to accept one of the apartments on the spot, represented that he was going to increase Kwon's compensation significantly and that Metedeconk would loan Kwon money against his future cash bonuses. (Id. ¶¶ 71-73.) Yun promised that he would pay Kwon sufficient cash bonuses to repay the entire principal and interest on the contemplated loan. (Id. ¶ 73.) Based on these promises, Kwon agreed to rent the apartment and, upon returning to the office, Yun transferred $100,000 to Kwon's personal checking account as the first installment of the loan. (Id. ¶ 74.) Kwon received further loan installments until March 2003, and regularly discussed his living expenses and budget with Yun during that time. (Id. ¶ 75.) Yun told Kwon that a fair compensation for him would be $400,000 base salary plus cash and stock bonuses, and also repeated his promise that Kwon would receive sufficient bonuses in the future to repay the principal and interest on the outstanding loan. (Id. ¶¶ 75-76.)
None of these promises, however, appears in either of the promissory notes (id. ¶ 79), or in any other writing. Kwon affirms that this is because the parties had not yet determined which entity would pay his bonus, and because the notes were to be amended or replaced in connection with revised shareholder and employment agreements between Kwon and Voyager. (Id. ¶¶ 77, 79.) Ultimately, the business necessary to make Voyager a viable, stand-alone entity never materialized, thus obviating the need for such additional agreements. (Id. ¶ 78.) Kwon further attests that the relevant promissory notes -- which were not the product of negotiation and were not reviewed by counsel -- were based on a generic promissory note previously used by the Yun defendants. According to Kwon, his use of this generic template was intended to be a temporary method of documenting the loan until the above-referenced issues regarding Voyager's viability were resolved. (Id. ¶¶ 80-81.)
In total, Kwon borrowed $390,000 from Metedeconk. (Kwon Dep. 142-43.) The loan was memorialized in two promissory notes (the "Notes") and a security agreement, none of which defendants have produced. The first promissory note, dated March 15, 2002, had an outstanding principal of $300,000, a maturity of five years, and an interest rate of 8% per annum. (Stein Decl. Ex. 5 at 1.) The second promissory note, dated January 15, 2003, also had a maturity of five years and an interest rate of 8% per annum. (Id. Ex. 6 at 1.) Its principal amount, however, was $90,000. (See id.) For both Notes, the principal and interest are due only upon maturity. (Id. Exs 5-6.) In addition, each of the Notes contains the following provision:
10. Amendment; Entire Agreement. (a) This Note may not be changed, waived, modified or discharged orally but only by an agreement in writing, signed by the party against whom enforcement of any such change, waiver, modification or discharge is sought. This Note may not be assigned by Borrower or Lender. This Note shall be binding on Borrower and shall inure to the benefit of Lender.
(b) This Note represents the agreement of Borrower and Lender with respect to the subject matter hereof, and there are no promises, undertakings, representations or warranties by Lender relative to the subject matter hereof not expressly set forth or referred to ...